Thursday - December 11, 2008

AMERICA TO BLAME FOR BRIT FINANCIAL CRISIS?  NOT ACCORDING TO THIS MAN.

Tis indeed good to see at least one person defending us against the left here.
Funny how subjects that put me to sleep when I was much younger, like say,30, 40, 50, 60 hold my interest now.
Though to be really open and honest on this blog I should confess it’s mostly the wife who keeps up.  She reads the financial page and sort of like Uncle Jay explains the news, but minus the humor, tells me what it all means.

Gordon Brown must blame himself, not the USA
The Prime Minister’s finger-pointing is an attempt to disguise his own culpability.

Irwin Stelzer
Last Updated: 8:08AM GMT 11 Dec 2008

Enough! It’s time to put an end to Gordon Brown’s ridiculous blame game. As the Prime Minister tells it, Britain’s woes started in America. Like some strain of flu, America’s problems found their way across the ocean to London, and from there to the rest of the British economy. Cheers from the Left, eager to rubbish America and to resurrect their leader’s reputation.

Unfortunately for Mr Brown, neither his claim – he told Parliament yesterday, “Not only have we saved the world”, modestly eschewing the “I” word – nor his Macavity act can survive scrutiny. It is beyond question that Britain’s problems stem in part from its fractured regulatory system, with responsibility split between the Bank of England, the Financial Services Authority, and the Treasury. A close study of the relevant documents fails to reveal that this system was forced upon Brown by the US authorities. No, it sprang full blown from the brains of Chancellor Gordon Brown and his sidekick, Ed Balls.

Then there is the first manifestation of Britain’s problem, the run on Northern Rock. A further search of the archives fails to produce any proof that malevolent Americans slipped into the Northern Rock boardroom and forced the directors to write mortgages in excess of the value of the underlying properties, or persuaded them not to check the ability of potential borrowers to repay their loans. It was British, not American, regulators who found Northern Rock’s business model perfectly acceptable.

Nor is there any record of American advisers whispering into the Prime Minister’s ear: “Dither, dither, something might turn up.” The indecision in the face of the Northern Rock and subsequent crises seems to have been a purely Scottish disease that afflicted Nos 10 and 11, rather than a virus imported from America.

Then there is the question of all those subprime mortgages that originated in the United States – they did – and were combined into securities that were sold to financial institutions eager to boost profits. If there is proof that US bankers jetted to London and forced British banks to buy these asset-backed securities, I have been unable to find it. Without that, we have to assume that Britain’s banks saw an opportunity for profit, guessed wrong, and were never pressed by the regulatory authorities appointed by Brown to tighten their risk-management procedures.

Which brings us to what perhaps is the more important point: Brown’s insistence that Britain is the best situated of all countries to face the economic headwinds, and to recover once they have abated. One reason offered is that before the downturn, the Government created three million jobs.

Unfortunately, masses of those were in the public sector, where productivity is far below the private sector, where unreformed work practices are the norm, and where non-jobs are often mere substitutes for the dole. Then there is the uncomfortable fact that the UK labour market attracted millions of foreigners, but not the millions of British nationals who find themselves too stressed, too back-achy, or too tempted by generous benefits to accept low-paid work. This is not to say that everyone receiving benefits is able to work; but no one, including Secretary of State for Work and Pensions James Purnell, doubts that millions are. This crushing weight on the productive sector will make it very difficult for Britain to return to long-term sustainable economic growth.

Britain’s recovery will also be slowed because its potential entrepreneurs, the economy’s real job creators, must cut through miles of red tape, face the risk of retroactive increases in taxes, and somehow market products to heavily indebted consumers who have to get their balance sheets in reasonable shape before returning to the high streets.

Finally, there is Britain’s fiscal condition. Instead of using the good years to pile up surpluses to spend in the lean years, Brown decided that he had conquered the business cycle – no more boom and bust. There is no minute of any meeting to suggest that the American economists and businessmen with whom the Prime Minister was so fond of being photographed tried to persuade him that he had indeed discovered the magic formula that could end business cycles. The hubris was home-grown. Which leaves Brown in the position of being forced to make clear that tax increases are in Britain’s future – not a prospect that will encourage spending. Franklin Roosevelt promised to attack the Great Depression with a policy of tax and tax, and spend and spend. Brown is promising the reverse: to spend and spend, and then tax and tax. Economists agree that when consumers know measures to induce spending are temporary, that higher taxes are in their future, they do not respond by spending their windfalls.

None of this is to deny that developments in an economy as large as America’s have an impact on its trading partners and other countries. Or that America’s bankers mismanaged risk. But it remains an incontestable fact that the Prime Minister is pointing a finger at America to conceal his mishandling of the British economy and, lately, the futility of some portions of the stimulus package he has crafted. Gordon Brown’s search for a villain might better take him to the nearest mirror than to Washington, DC.

DON’T BLAME AMERICA

Posted by peiper     on 12/11/2008 at 09:47 AM   
Filed Under: • Economics • UK •  
• Comments (3) • Trackbacks(0)  Permalink •  

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